Sunday, September 23, 2012

Polite Debate Is More Convincing

This is
followed by nine comments exchanging juvenile abuse about “jack offs”.This sad situation provoked ne to offer
a comment.First, the “Economic
Historian”:

“I'm tired
of hearing the phrase "invisible hand" used as though it refers to
so-called "free markets" (as though that phrase is a technical term
with a clear definition).

To put it
to rest: Smith's argument in the Wealth of Nations is a sociological argument
about economic investment. Smith wrote:

"By
preferring the support of domestic to that of foreign industry, [a merchant]
intends only his own security; and by directing that industry in such a manner
as its produce may be of the greatest value, he intends only his own gain, and
he is in this, as in many other cases, led by an invisible hand to promote an
end which was no part of his intention (1776 [1981]: 456)."

In the
paragraphs before and after, Smith is arguing that business people prefer to
use their capital on domestic rather than foreign trade because they lack
familiarity with capitalists in other countries and their legal systems. Thus,
a sociocultural preference for one's home country combined with a
self-interested desire to increase profits -- which together Smith calls an
"invisible hand" -- results in higher employment and growth in that
country.

The odd
part is that the reality now is the complete opposite of Smith's justification
for the "invisible hand." Multinational corporations move investment
everywhere, and business people have few sociocultural preferences for their
home countries. Thus the "invisible hand" doesn't exist except as a
distortion of Smith's arguments.

Your
economic historian”

Comment

Instead
of posting juvenile abuse to each other, I suggest a more mannered discussion
would add to the sum of human knowledge.

The"invisible
hand" was a metaphor in Wealth Of Nations (1766) for
"insecurity" felt by some, but not all merchants, "leading"
them to prefer "domestic industry" to their perceived risks of
"foreign" trade.The
metaphor of "an invisible hand" described that motivation in a
"more striking and interesting manner", as expressed by Adam Smith on
the role of metaphors in his "Lectures On Rhetoric and Belles
Lettres" (1763, p 29).)

His
other reference was in Moral Sentiments (1759) where he used "an invisible
hand" metaphor to describe how "proud and unfeeling landlords were
"led" to feed enough for the subsistence of the "thousands whom they
employed"(otherwise they
could not work or survive and neither could the landlords enjoy their
"greatness").This
unintentionally propagated the species. Again the metaphor described this
mutual dependence in a "more striking and interesting manner".

In
the mid-20th century, Paul Samuelson taught in his popular textbook,
"Economics" 1948 (and 20 editions to2010), that Adam Smith had declared that markets were
governed by an invisible hand that led even selfish behaviours to general
public benefits, completely contrary to Smith's moral philosophy and political
economy.That is the source of the
invented and mythical so-called "invisible hand"It has nothing to do with Adam Smith.

2 Comments:

The perniciousness of Paul Samuelson's textbook has been widely documented. It does speak of something fundamentally broken in the academic discipline of economics -- how did a textbook which got *everything* so *terribly* wrong manage to become the best-selling textbook for 50 years?

nerodenI have discussed this many times on Lost Legacy (scroll down for "invisible hand'). I wrote about it for the History of Economic Ideas academic journal in 2011 ("Paul Samuelson and the Invention of the Invisible Hand").Apart from his invention (1948, p 36), his book was successful because it established new standards in textbooks and was much imitated. His readers spread out into economic teaching (myself included), entered public policy services, including politicians, and the media.It was timely as the Cold War boosted his book because it challenged Soviet central planning (and events won that debate with the collapse of central planning). Even the Chinese communists prefer markets, albeit under strict central control.Gavin